Here's what I learned about roundtripping $200k - > $2mm -> $100k on one position this year
// Thread //
// Thread //
1 - Despite the market topping out in November of last year, I copy traded some whale movements into a DeFi alt that tripled from my original purchase ($200k) in January 2022, and after exiting, I bought back again ~6 weeks later and it 3x'd again, bringing $200k -> $2mm
2 - I usually practice very tight parameters of when I sell (like at a 3x for example, or at least trimming a position by 50% @ a 3x), but in this case, emotions took over logic, and I ended up taking a massive L
3 - On the way up, I started playing the dangerous game of "well if this token gets to a $1bn market cap, I'm set for life". I married my bags, and broke all risk and position sizing rules I set for myself
4 - so here are some takeaways to remember for when you start killing it on one position:
* The markets have a way of humbling you, so if you hit a big winner, take some chips off the table. It will feel stupid in the short run, but you will thank yourself later
* The markets have a way of humbling you, so if you hit a big winner, take some chips off the table. It will feel stupid in the short run, but you will thank yourself later
5 - A token can always go down much more than you think it can + a lot faster. In this case, from my peak position value I'm down 95% (and still hodling) in the matter of 3 months. "It will never hit these levels" I told myself months ago, yet here we are.
5 (continued) - Especially on lower liquidity alts, there is a compounding downward spiral on prices as ETH + ALT tokens both go down, making liquidity lower, which exacerbates the price pressure from large holders selling
6 - everyone makes mistakes, will get emotional and not all "smart money" is smart. The speed and violence of the recent crypto market fall caught almost everyone off guard, so if you were simply copy trading whales, you could have gotten washed out (or capitulated at the lows)
6 (continued) - you want to enter *with* or even ahead of smart money, but you damn sure want to exit before they start selling. In a lower liquidity token with a high circulating market cap, if a collective group of whales start dumping, the price is going to get destroyed...
7 - the concept of "smart money" itself is kinda flawed, as its a blanket statement, with no segmentation of which smart money traders are better than others
7 (continued) - which is one of the things we are solving for with @ChainEDGE_io where we can segment P&L at the address level, and can say where a wallet falls in the $ or % return cohort over different time periods
7 (continued) - so you can pop in a wallet that is considered to be "smart money" and can see where they rank vs. other traders' historical performance + where they bought or sold their tokens on a price chart
8 - never forget that token movements are driven by (1) Beta to crypto majors, (2) narrative changes, (3) increases / decreases and value accrual and (4) token emissions.
onchainwizard.substack.com
onchainwizard.substack.com
8 (continued) - and that most protocol level tokens face high levels of smart contract and exploit risk, key man risk, along with heavy competition from other protocols -> your token probably isn't as special as you think it is
9 - always take a step back + realize where you are in the token's pump cycle. This particular token was running on an upcoming catalyst (with no set release date), so when I saw an uptick in twitter activity asking about the token, it should have been a sign to start trimming
9 (continued) - instead of thinking that this new interest in my token was a "validation" of my thesis. These new token tourists were the reason we were pumping much harder than ETH, which is why the token swiftly unraveled vs. ETH on the way down as well
10 - don't overestimate "team" token activity. The core team + advisors to the protocol did not sell a single token during the run up and fall, which I took as a bullish sign. But this didn't stop basically every other holder from capitulating on their position into low liq
11 - the main problem for most DeFi tokens from either a narrative or value accrual perspective, is that they thrive on speculation. As prices decline, speculation drives up, and the "fundamentals" deteriorate.
11 (continued) - even in gaming tokens, we have seen this same lifecycle play out, where speculation + hype keeps the token inflated for some time, until it comes crashing down (both GameFI and DeFi have very similar protocol level pump cycles)
12 - catalysts don't matter when BTC/ETH are in free fall. Last year and earlier this year, if you bought in advance of a catalyst that the market did not anticipate, you were in a position for a "pump". New product releases today do not get the same "oh sick this is new" bid
12 (continued) - because demand for most alts is still very low, and a ton of on-chain capital ($150bn of stables) is still waiting on the sidelines
13 - Hopium - The projects that have the runway to exist, are continuing to ship/innovate and that don't have abandoned communities will pump again as the lower quality projects are wiped away. I think we are *getting closer* to a bottom broadly for BTC/ETH
13 (continued) - but we won't see the days of a bunch of tokens 30x-ing in a few months for years, until we see another speculative mania + money printing.
13 (continued) with that said, crypto is still a very small asset class (just $785bn excluding stablecoins) vs. trillions for stocks, credit and real estate + institutions are here to play now (Goldman attempting to scoop up Celsius' assets for example).
14 - another one to remember - don't ever fall into the trap of saying "oh man I don't want to pay short term cap gains on this trade, so I won't sell yet". I personally fell into this thinking, and it cost me way more than the tax burden I would have been looking at
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